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Cement Industry

Analysis of Pakistan’s Cement


Industry

Term Report

Submitted by:

Muhammad Anum Hasan


Nooruddin Muzzaffar
Zohaib Ali Khan

Class: IBA (Main Campus): BBA 4 (Yr 2005)

Course Instructor: Ms. Amber Imtiaz

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Cement Industry

Contents
Analysis of Pakistan’s Cement Industry..............................................................................1
Submitted by:...................................................................................................................1
Class: IBA (Main Campus): BBA 4 (Yr 2005)..................................................................1
Course Instructor: Ms. Amber Imtiaz..................................................................................1
Contents...............................................................................................................................2
A. Introduction.....................................................................................................................4
B. Global Cement Trends....................................................................................................5
C. Types of Cement.............................................................................................................6
Ordinary Portland Cement (OPC)....................................................................................6
Slag Cement.....................................................................................................................6
Super Sulfate Resisting Cement (SSRC).........................................................................6
Sulfate Resisting Cement (SRC)......................................................................................6
D. Manufacturing Processes................................................................................................7
Wet Process......................................................................................................................7
Semi-Wet Process............................................................................................................7
Dry Process......................................................................................................................7
The Quarry ......................................................................................................................7
Raw Milling.....................................................................................................................9
Pre-heater and Pre-claimer...............................................................................................9
The Kiln.........................................................................................................................10
The Process ...................................................................................................................11
Packaging and Distribution............................................................................................12
...........................................................................................................................................13
E. Raw Material.................................................................................................................14
F. Historical Development of Cement Industry of Pakistan..............................................15
Derived demand.............................................................................................................19
As the demand of cement is derived demand and grows with the GDP. The above figure
shows the comparative demand and growth of the cement industry with respect to the
growth in the GDP of the country. The boom of the eighties and the nineties and again
the growing GDP after 9/11 has caused a tremendous growth in the cement industry.....19
G. Size and Trends.............................................................................................................20
Demand-Supply Gap to Restrict Profit Growth.............................................................21
Sustainability of Demand Growth.................................................................................21
Capacity Expansions- a Test for APCMA.....................................................................22
Per Capita Consumption of Cement..............................................................................25
Exports to Afghanistan..................................................................................................27
H. PROFILE OF PAKLAND CEMENT...........................................................................29
Process Features at Pak land..........................................................................................29
Sophisticated Technology..............................................................................................30
Quality Program.............................................................................................................30
Growth of Pak land Cement...........................................................................................30

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I. Cement Cartel-All Pakistan cement manufacturers ASSOCIATIONS (APCMA)........32


J. Major Players.................................................................................................................32
K. Factors Affecting Demand Conditions.........................................................................33
Growth in Housing Sector.............................................................................................33
Growth in Exports..........................................................................................................34
Infrastructure Development...........................................................................................34
Low Per Capita Consumption of Cement......................................................................36
Wars...............................................................................................................................36
Disasters.........................................................................................................................36
Availability of Raw Materials........................................................................................36
Imported Machinery.......................................................................................................37
Fuel Conversion.............................................................................................................37
Government Duties........................................................................................................37
Export Distribution........................................................................................................37
Low Interest Rates.........................................................................................................37
Emerging trends worldwide...............................................................................................38
Critical Success Factors.....................................................................................................38
Taxes..............................................................................................................................40
Licenses..........................................................................................................................40
Cement Cartel................................................................................................................40
Export Incentives...........................................................................................................40
Comparison of Chinese and Indian Cement Industry........................................................41
CHINESE CEMENT INDUSTRY................................................................................41
INDIAN CEMENT INDUSTRY...................................................................................43
Major cement plants ..................................................................................................44
Mini cement plants ....................................................................................................44
Recommendations..............................................................................................................47

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Cement Industry

A. INTRODUCTION

Cement industry is a major indicator of economic growth and revival of any country.
This industry gives the growth and improvement of infrastructure of a country. In
Pakistan, positive macro economic indicators and governments intention of spending
more on social and infrastructure development has increased the demand for cement
many folds.

This report begins with a general overview of the industry locally and globally. Then we
go on with the manufacturing processes and the types of cement. This report also
discusses the size, trends, major players, a detailed profile of Pak land cement is also
given in the report, regulatory bodies, factors affecting demand and supply, factor
conditions, porters competitive forces according to the cement industry, governments role
in the industry, comparison with India and China, and finally future prospects and
recommendations.

Before discussing the local industry let us first analyze the global scenario regarding this
industry.

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Cement Industry

B. GLOBAL CEMENT TRENDS

Following are the major trends in the cement industry globally:

• There is a shortage of cement world wide because of the following reasons:

o Wars and reconstruction in Afghanistan and Iraq.


o Disastrous events such as earthquakes in Iran and Tsunami.
o World wide economic recovery resulting in huge developments of
infrastructure by developing countries.

• Construction and engineering industries form 10-12% of the GDP of many


counties worldwide.

• World spending on construction approximately equals $ 3.2 trillion in 1998.

• The economic uplift of developed countries stands on the infrastructure provided


by the cement industry.

• Newly industrialized nations such as Korea, Malaysia, Singapore, and developing


like turkey & Indonesia have used this industry to their advantage.

Now let us find out what are the types of cement and their manufacturing processes.

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Cement Industry

C. TYPES OF CEMENT

Ordinary Portland Cement (OPC)

It is the most widely used cement. It is commonly used in our daily lives. It is popular
because of its uniformity and excellent quality and in general construction and buildings.
This is basic cement all other types are derived forms of OPC with minor chemical
changes in the composition.

Slag Cement

It is comprised of Portland clinker and granulated blast furnace slag in optimum


proportion. It is chemical and heat resistant. It is also economical as compared to other
cement. Its short age strength is lower but long age strength is higher. It requires more
curing than OPC. It is useful in masonry, plastering, and foundation work etc.

Super Sulfate Resisting Cement (SSRC)

This cement is manufactured by mixing limestone, clay, silica sand, and iron ore (5-
10%). Its use is recommended for construction of basement foundation, especially near
the areas with higher humidity and near the sea etc. the capacity of this cement to protect
reinforcement is limited so its use in superstructures is not advisable.

Sulfate Resisting Cement (SRC)

This cement has been developed as a compromise between SSRC and OPC. It has the
strength of OPC and the resistance to sulfates and salts of SSRC.

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D. MANUFACTURING PROCESSES

There are three conventional processes used in Pakistan to manufacture cement:

Wet Process

In view of the constraints of kiln dimension and large water requirements and extremely
poor heat efficiency, wet process has become obsolete.

Semi-Wet Process

The process is suited for materials with sufficiently high plasticity. This process has also
become outdated due to high fuel/energy consumption.

Dry Process

The dry process was formerly used where water and the raw materials were scarce. But
now it is the most popular process in the cement industry. The advantages are: (1) the
fuel requirement is about 800 Kcal per kg of clinker (which is about 40 percent less as
compared to the wet process). This process enables the processing of a water range of
raw and the maintenance is easier. The raw material is preheated and partially calcium
resulting in higher kiln efficiency. The kiln being shorter in length requires less space in
erection and easier to maintain.

A detail of the manufacturing process is given below

The Quarry

The basic raw materials for cement are limestone, shale and sand.

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In order to get at the limestone, various other layers of rock have to be removed. In total,
the quarry moves some seven million tones of rock each year - two million tones of
limestone, and the remaining five million tones of other material. The various different
types of rock are illustrated in the diagram below:

The quarry is very different to the normal type of cement


linked quarry - these usually extract the rock from the side of
a hill. This presents a number of challenges - getting to the
limestone, transferring the other rock and then replacing the
materials afterwards.

To get to the limestone, various other types of rock have to be


extracted and moved. Once removed, the overburden is
transferred behind the cut and stored. Once the limestone
from the cut has been depleted, the overburden is returned, in
the same order. This is important for the stability of the
restored land.

Different types of machine are used to extract and move


different types of rock:

• The dragline

• The bridge

• Earth moving machinery

The limestone is extracted by blasting. Typically, there will


be one blast a day. Should there still be any large rocks, these
are broken up by the drop ball. This simply involves dropping
a large ball onto the rocks. The limestone is then transferred
by either a 55 or an 80 tone truck to the crusher.

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Raw Milling

• The limestone and shale are transported to the raw mill


from the quarry by conveyor. At this stage the materials
are in the form of small rocks, up to 150 mm in size.

• The raw mill reduces these materials from this size to a


fine powder. At this stage, sand is also added to the
limestone and shale, in the correct proportions, to create
the raw meal. The material is crushed by a pair of rollers
which presses down onto a rotating table. The material is
then caught up in a high velocity gas stream, which
sweeps it upwards. The fine powder then exits the mill,
while any oversized material falls back to the table for
further grinding.

• The raw meal is then extracted from the gas flow by a


large electrostatic precipitator, and is then stored in silos
before it enters the pre-heater stage.

Pre-heater and Pre-claimer

The raw meal from the storage silos is fed into the pre-heater.
Initially the raw meal is crushed by two large grinding wheels
(the picture shows one) in the Raw Mill, and is then blown up
the pre-heater where it is heated by hot exhaust gases from
the kiln.

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• The pre-heater is a large tower some 90 meters high,


containing five vessels, or cyclones, through which the
raw meal is passed. The raw meal enters the pre-
heater at the top and descends through the cyclones,
being heated by hot exhaust gasses from the kiln.
• Additional fuel is added at the base of the pre-heater.
At this stage, the raw meal is heated to 900 oC, and the
chemical reaction is initiated. This is known as the
pre-calciner stage.
• About 60% of the total amount of fuel used in the
process is burnt at this stage. The fuel is principally
ground coal, but Blue Circle is experimenting with
burning various recycled materials.

The material then passes from the pre-calciner to the kiln.

The Kiln

After the pre-heater stage, the material is moved into the kiln.

The raw meal enters the 60m long, 4m wide kiln tube, which
is slightly inclined downwards. It rotates at 3.5 rpm, which
assists in moving the raw meal through the kiln, towards the
20m long flame.

The flame heats the raw meal to 1400 oC in order to complete


the chemical reaction, producing what is termed clinker.

The hot clinker then drops out of the kiln and is cooled. It is
then transported to the next stage of the process, ready for the
final milling operation.

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Cement Industry

The Process

The principal raw materials for cement manufacture are


limestone and shale, which occur in the cement quarry. These
materials are extracted from the quarry and are crushed and
milled and then transported to the Works by a series of
conveyers.

Once in the Works, sand is added to the limestone and shale,


creating a raw meal. This then enters the blending process,
which thoroughly mixes the raw meal.

The raw meal is then transferred to the pre-heater and pre-


calciner. During this process, the raw meal is heated to 900 oC
and the chemical reaction is initiated, thereby reducing the
work needed within the kiln. The material is then transported
to the kiln.

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Once inside the rotary kiln, the material is moved towards the
coal flame, which heats it to 1450 oC, completing the
chemical reaction. At this stage the material is known as
clinker. The hot clinker is then rapidly cooled by blowing air
over it. A small quantity of gypsum is added to prevent the
cement setting too quickly, finally prior to it being ground in
ball mills to form a fine powder: cement.

The cement is then stored prior to dispatch. The majority of


the cement is dispatched in bulk by rail or road. The
remaining cement enters the packing process, where it is
placed into bags, which are packed onto pallets prior to road
dispatch.

Packaging and Distribution

Once the cement has been manufactured, it is stored prior to


dispatch in bulk or in bags.

Bulk distribution is either by road or by rail. In both cases, the


bulk tankers are placed under the storage silo, and are filled to
predetermined levels by computer control.

Bag distribution is performed by road. The cement is


transported from the silo into the bagging machine, which
automatically picks up, opens and fills the bag with the
correct quantity of cement. The bags are then sealed, marked
with the production date, and transported to the palletizing
machine. Prior to being packed onto a pallet, each bag is
sprayed with an adhesive, which increases the stability of the
pallet. The pallets are packed automatically on the palletizing
machine, which rotates the pallet in order to improve the
stability of the bags. The pallets are then stored, prior to road
distribution.

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E. RAW MATERIAL

The raw materials used for the manufacturing of Portland


cement are mainly limestone (calcareous material) and clay/
shale (argillaceous material). The most common variety
Portland cement is a mixture of calcimined calcareous and
argillaceous materials, forming a complex composition
consisting of tri-calcium illuminate, tetra-calcium alumna
ferrite, de-calcium silicate and tetra calcium ortho silicate.
The proportion of the last two constituents in the Portland
cement varies from 70-78 percent. While the proportion of
first constituent, tri-calcium aluminates is about 10 percent,
the balance being the second constituent.

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F. HISTORICAL DEVELOPMENT OF
CEMENT INDUSTRY OF PAKISTAN

For a developing country like Pakistan the production and


amount of cement used per person indicates the stage of
development. When Pakistan came into it has only one to two
cement plants. Then up till 1958 we had six cement plants.
The greatest development was made in the decade of
development (1958-1968). In this development nine plants
were set up. In Bhutto’s era (1971-1977) due to
nationalization no new plants were set up. Now there are 24
cement plants existing with two sick units bringing the
number of operational units to 22.

Number of cement plants in history of Pakistan


Years Number of plants
1947 1-2
1948-1958 6
1958-1968 9
1971-1977 No new plants were set up due to nationalization
1977-1988 24 (IRS)

Number of Cement plants in history of


Pakistan

30

25
Number of plants

20

15

10

0
1947 1948-58 1958-68 1971-77 1977-88
Years

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Pakistan is fortunate to be rich in the deposits of limestone,


clay and gypsum, which are the basic raw materials for the
manufacturing of cement. In spite of having abundant raw
materials and rising growth in demand of cement, only five
cement factories were set up during thirty years of
independence, with aggregate capacity of 3.2 million tons.
Consequently, Pakistan had to import cement, which reached
to a level of 1.3 million tones in the year 1981-1982.

The expenditure incurred on import of cement as well as plant


and machinery drained out substantial foreign exchange from
the meager national resources for a very long period. The
scarcity of cement also hampered the developmental process
of the country.

Following table shows the growth of production of cement


over the years.

Number of plants and production of Cement


Years Number of plants Production (000 million tons)
1999-
23 9314
2000
2000-
22 9674
2001
2001-
22 9935
2002
2002-
22 11020
2003
2003-
22 13500
Production Capacity (IRS)
2004

15000
Capacity (000 MT)

10000

5000

0
1999-00 2000-01 2001-02 2002-03 2003-04
Years
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The cement industry follows a cyclical pattern of growth and


declines same as the GDP and the business cycle because the
demand of cement is derived demand which is directly related
to the GDP of the country.

Following table shows the historical growth of cement


industry.

Percentage Growth of Cement Industry


Year Percentage growth of Cement Industry
1990-1991 3.66
1991-1992 7.20
1992-1993 2.85
1993-1994 -5.35
1994-1995 -2.31
1995-1996 20.9
1999-2000 -3.33
2000-2001 1.4
2001-2002 1.61
Historical Growth rate of Cement
2002-2003 12.11
Industry ofinPakistan
(Industry Focus
2003-2004
25 Ismat Sabir)
20
15
Growth rate
Percentage

10
5
0
1990-1991

1991-1992

1992-1993

1993-1994

1995-1996

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004
1994-1995

-5
-10 Years 17
Cement Industry

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Derived demand

As the demand of cement is derived demand and grows with


the GDP. The above figure shows the comparative
demand and growth of the cement industry with respect
to the growth in the GDP of the country. The boom of the
eighties and the nineties and again the growing GDP after
9/11 has caused a tremendous growth in the cement
industry.

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Cement Industry

G. SIZE AND TRENDS

• “The total number of cement plants in Pakistan is 24


23 of them are operative and 17 are listed on the
Karachi stock exchange.

• Cement industry had a capacity utilization of 81% on


June 30, 2004.

• Some had the capacity utilization higher than 81% i.e.


85-100%; which is the highest in the last decade.

• Production in the first half of the fiscal year 2004-05


is 732 million tons which equals 83%capacity
utilization.

• The industry reported an after-tax profit of Rs. 3,200


million, a growth of 17% in after-tax profits.

• During fiscal year 2003-041363 million tones in sales


of cement were recorded, resulting in a 20%growth
domestically and 160% growth in exports.” (EBR-
DAWN)

• “Capacity expansion of 13million tons will go online


between FY05-FY09.
• By FY09 total cement sales will reach 196 million
tons, resulting in capacity utilization of 65% as
compared to 79%in FY04.” (Cement update-invest
cap).

• Currently almost all of the cement plants are


undergoing conversion and expansion plans.

• The conversion has taken place from furnace oil to gas


and finally to coal.

• The increase in demand is expected to increase to


2008-09 due to the reasons described below.

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Cement Industry

Demand-Supply Gap to Restrict Profit


Growth

With 13mn tons of new cement capacity coming online


during FY05-FY09, there is bound to be an imbalance
between demand and supply. By FY09 total cement sales will
reach 19.6mn tons, resulting in a capacity utilization of 65%
as compared to 79% in FY04. The above average rise in
cement sector profits in FY04 will continue in FY05 and
FY06 also. After that, profits will stabilize for the next two
years, i.e. till FY08 due to mounting capacity. Beyond FY08
profits will again grow but at a slower pace.

Sustainability of Demand Growth

An abnormal surge in domestic cement demand during the


last two years FY03-04 is partly due to exceptionally low

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interest rates, exceptionally low per capita cement


consumption in the country and the rise in government
spending on mega projects like Gwadar, Karachi bypass,
Kohat Tunnel etc. Moreover, increasing housing activities
due to access of liquidity and minimum avenues of
investment also helped cement sales growth. Also growth in
GDP form 5-7% and exports to Afghanistan have resulted in
a sustained growth in demand.

Capacity Expansions- a Test for APCMA

In the past two years the listed cement sector has


outperformed the market by approximately 40%. After going
through rough times cement manufacturers formed an alliance
(cartel) and focused their attention on operational efficiencies
in the early years of this decade. This coupled with improving
economic fundamentals, enabled the industry to turn around
with chances of posting profits of Rs. 50 billion in FY04.

Due to these record profits and rising demands, the sector is


once more going for expansions. But the recent spate of
expansions is different from the situation that occurred in the
second half of the 90’s

Following are the reasons for this assumption:

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• Although there will be hiccups in the cartel as each


competitor aims to get more quota to utilize its
expanded capacity effectively, but the members of the
cartel have seen enough hardships to through up the
alliance.

• Interest rates have come down drastically as compared


to the 90’s. It is not likely that short term interest rates
would go up to double digits as in the 90’s. Currently
the top cement companies can borrow at 1-2% plus 6-
month KIBOR rates (currently at 4%) (Cement update
October 2004)

• The cement companies are armed with much cheaper


source of fuel as compared to 90’s. Though they are
importing higher quality coal from South Africa but if
hard pressed they can shift to local low quality coal.

• The surge in cement exports to Afghanistan have


acted as a cushion for the industry which in 90’s relied
solely on the local market.

• The economic fundamentals are stronger as compared


to the nineties. And growth momentum is likely to
continue in future and local demand growth is likely
to settle down close to GDP growth rate in the long
run.
• 90’s expansions were financed through loans at higher
rates but recent ones are profit financed on low cost
and huge cash basis (currently generated profit)

• The companies have learned cost efficiencies through


the hardships of the nineties.

• Local demand side is very positive due to house


financing, fiscal space to the government for
infrastructure projects after quitting IMF and finishing
of deficit targeting.

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Per Capita Consumption of Cement

Cement is one of the basic ingredients for the development of


a country. Its per capita consumption is an indicator of
economic activity in the country. Unfortunately, Pakistan is
trailing behind all other developing countries in the region
with lowest per capita consumption of cement.

Annual Consumption of Cement


Countries Million tons
China 512.0
Taiwan 20.8
Malaysia 11.5
Sri Lanka 2.2
Indonesia 19.3
India 85.0
Pakistan 9.1 (IRS)

Annual Cement Consumption

600
500
400
MT 300
200
100
0
China Taiw an Srilanka Malaysia Indonesia India Pakistan

Countries

In Pakistan the per capita consumption was only 76kg as


compared to 960kg in Taiwan and 530 kg in Malaysia in the
same year. This was even higher in Sri Lanka at 118kg. This

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low consumption resulted in under utilization of


manufacturing capacity.

Per Capita Consumption of Cement


Countries Kg
Taiwan 960
Japan 603
Thailand 600
Malaysia 530
China 450
Egypt 334
USA 261
Philippine 202
Indonesia 140
Sri Lanka 118
India 99
Pakistan 2000 76
Pakistan 2003 120 (IRS)

Per Capita Consumption of Cement

1000
900
800
700
600
Kg 500
400
300
200
100
0 Taiwan J apan Thailand Malaysia China Egypt USA P hilippine Indonesia Srilanka India Pakistan

Countries

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Exports to Afghanistan

Export of cement to Afghanistan is another reason for the


overall increase in exports. Due to this the proportion of
exports in cement sales has now increased to 8 percent from
the previous 4 percent. This proportion is expected to
improve further up to 17.5 percent by FY08. It is believed
that cement exports will touch to 3 million tones per annum.
The reasons for this estimation are increasing construction
activity in Afghanistan and lower competition from Iran.

Cement Exports (Value in 000 US$)


Cement Types 2000-01 2001-02 2002-03
Cement White 0 14 0
Cement Clinkers 0 0 0
Cement Portland 777 3180 10737
Others 2 2 0
10737
(Industry in
TOTAL 779 3194
Focus Ismat
Sabir)

Cement Exports
Cement
12000 White
Value in 000 US$

10000 Cement
Clinkers
8000
Cement
6000 Portland
4000 Others

2000 TOTAL
0
2000- 2001- 2002-
01 02 03
Years

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Donors had pledged grants to Afghanistan in excess of US$ 3


billion. Early estimates had put the figure of annual
investment in Afghanistan at US$1 billion with 15 percent
(US$ 15 million) share committed for cement consumption.
This represents very bright prospects for construction activity
in Afghanistan and the results are evident from the demand
for exports materializing from Afghanistan.

Iran is the major competitor of Pakistani cement in


Afghanistan. Due to the cheaper cement, the market share of
Iranian cement was much higher than Pakistani cement.
Previously, Iranian cement prices were much lower, i.e., US
$32 per ton as compared to Pakistani price of US $70 per ton.
However, Pakistani exporters have now become more
competitive and are exporting better quality cement at US $30
per ton. Moreover, Iran was initially exporting 10 percent of
its production to Afghanistan, but with an increase in its
domestic demand, Iran is now concentrating on its domestic
market. This is likely to improve the market share of the
Pakistani cement.

In addition to Afghanistan, Sri Lanka, Bangladesh, Middle


East, and Vietnam are being explored as new destinations for
cement exports. Industry sources indicate that there is a
potential to export 2 to 3 million tones per annum of cement
to these countries.

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Cement Industry

H. PROFILE OF PAKLAND CEMENT


Pak land’s corporate philosophy is based on the concept of
excellence. This has enabled the company to maintain its
superiority in product quality, resource management and
operational systems design.

Pak land commenced business in 1976by establishing a land


development company by the name of Pak land housing
(PVT) limited. This company is now Pakistan’s largest land
developer in the private sector.

As an organization dedicated to the industrial and economic


development of Pakistan, Pak land looks ahead to the future
with the same spirit of commitment that has characterized its
first major industrial venture- Pak land cement limited.

PAKLAND CEMENT

Achieved rated capacity with in six hours of commissioning

Produced over 100% annual rated capacity in the first year of ope

Country’s first cement plant to have computerized quarry plann

Computerized quality assurance program for uniform high quality

Built and commissioned in record time of 2.5 years


Optimum plant operations achieved with only a workforce of 1

Process Features at Pak land


The selection of the manufacturing process fro cement
determines its quality. The process varies from wet to dry
methods of preparing raw materials for burning.

Following are the steps involved in the manufacturing of


cement at Pak land:

• Latest process design technology


• Suspension preheated type of dry process system

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• Specially designed sampling station


• Latest pre homogenizing techniques
• Advanced technology with central control station

Sophisticated Technology

Sophisticated technology available at Pak land can be


highlighted in the following features

• Central control technology to operate and monitor the


whole process line from a single station
• Latest dust suppression and pollution control
techniques
• Uninterrupted electrical power supply
• Microprocessor controlled X-ray analyzer

Quality Program

Quality assurance in the cement manufacturing industry is not


limited to discrete test on the end product. It is a continuous
process, covering all stages of production, starting from
quarrying of raw materials to the packaging of finished
product.

The quality assurance program has the following parts

• Clearly defined objectives


• Manpower training
• Sophisticated equipment
• Multiple especially designed sampling stations
• Frequent sampling

Growth of Pak land Cement

At Pak land, it is the management’s aim to set challenging


targets and then provide the atmosphere and the infrastructure
to achieve this. An ambitious program was undertaken in
1987-88 to optimize the production capacity to 1500 TPD
(tons per day) from the original 1000 TPD. Thereafter a
further expansion was planned to more or less double the
capacity of the plant which also has been achieved. Efforts
are underway to further enhance the capacity of this plant to
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3000 TPD. Consultants have been approached and design


specifications are under preparation.

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I. CEMENT CARTEL-ALL PAKISTAN


CEMENT MANUFACTURERS
ASSOCIATIONS (APCMA)

Before private investment came into this sector the cement


industry had only the state cement corporation of Pakistan
(SCCP). But in Zia’s era after privatization and the boom of
the 80’s many cement factories sprung up resulting in fierce
competition and price wars. It continued in the 80’s but with
the recession setting in during mid and late 90’s the cement
manufacturers were hard pressed for survival and this led to
the formation of APCMA - ALL PAKISTAN CEMENT
MANUFACTURERS ASSOCIATION.

The duty of this cartel is not to regulate price but to regulate


quotas. The members of this cartel call it a “business
arrangement” but outsiders call it a cartel.

J. MAJOR PLAYERS

1) Attock cement
2) Best way cement
3) Chakwal cement
4) Cherat cement
5) D.G. Khan Cement
6) Dadabhoy cement
7) Dadex cement
8) Fauji cement
9) Fecto cement
10) Gharibwal cement
11) Javdan cement
12) Kohat cement
13) Luckey cement
14) Maple leaf cement
15) Mustehkum cement
16) Pakistan slag cement
17) Dewan (Pakland) cement
18) Saadi cement
19) Zeal pak cement
20) Essa cement
21) Dandot cement
22) Kohat cement

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K. FACTORS AFFECTING DEMAND


CONDITIONS

Following are the main factors affecting the demand of


cement:

• Growth in housing sector


• Increase in exports of cement
• Infrastructure development
• Low per capita consumption of cement
• Wars
• Disasters

Growth in Housing Sector

Following are the reasons for the growth in housing sector

• Liquidity in the market has increased a lot by the


introduction of new house finance schemes.
• Remittances from overseas Pakistanis have increased
leading to the in crease in expenditure of house
building by the consumers.
• The banking sector is loaded with liquidity.
• The government of Pakistan has launched several
policies to support this sector like
o National housing policy to regularize kachi
abadies.
o Tax incentives were provided to in the form of
tax deductibility of mark up to loan borrowers.
o The limit of property income with holding
taxes were enhanced from 0.1 million to 0.2
million, to encourage documentation.
o Concessionary import duty of 10% on the
import of machinery.
o Reduction in central excise duty (CED) on
cement.
o Ease in issuance of no objection certificates
(NOC)
o Increase in budgetary allocation for the public
sector development program (PSDP) by the
government of Pakistan.

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Cement Industry

o GHAR AASAN and SHANDAR GHAR schemes were


introduced.

• Several measures have also been taken by the State


Bank of Pakistan

o SBP first increased the limit of loan to house


financing and then removed it from March 19,
2005.
o Debt to equity ratio was changed from 70:30
to 80:20.
o The maximum loan period was enhanced from
15 year to 20 years.
o The foreclosure law was amended to allow the
banks to repossess the properties without
recourse to court.

Growth in Exports

• Growth of exports of cement have increased from 4%


to 8%
• Cement exports are expected to touch the 3million ton
mark.
• Following are the reasons for the growth in exports of
cement

o Construction activity is rapidly rising in


Afghanistan.
o Lower competition from Iran even with its
lower prices and easy accessibility the reason
for this change is increased domestic demand
in Iran due to the reconstruction in earth quake
affected areas.
o Export rebates of 12.5%
o Competitive prices due to export rebate, fuel
efficiency and low transportation costs.

Infrastructure Development

Several public sector development projects (PSDP) have been


started by the government of Pakistan like Gwadar Port,
highway and motor way projects, building and reconstruction
of dams and Kohat tunnel etc.

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Cement Industry

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Cement Industry

Low Per Capita Consumption of Cement

As stated earlier the per capita consumption of cement in


Pakistan has been very low 76 kg as compared to a world
average of 245 kg. This means that there is a great
requirement of cement if the growth picks up a bit, as is
evident by the present scenario.

Wars
Wars and reconstruction activity in countries like Afghanistan
and Iraq have increased the consumption of cement many
folds. The huge developmental expenditure by their
governments and the inflow of aid from developed countries
has also increased the demand for cement.

Disasters

Earth quakes in Iran and tsunami in Far East led to a direct


increase in the demand for cement so that these countries
could develop and provide shelter to their people.

L. FACTORS AFFECTING SUPPLY


CONDITIONS
Following are the factors affecting the supply of cement:

• Availability of raw materials


• Imported machinery
• Fuel conversion
• Government duties
• Export distribution
• Low interest rates

Availability of Raw Materials

Pakistan in fortunate enough to have vast amount of natural


resources as far as the cement industry is concerned. We have
rich deposits of limestone and gypsum some of the basic raw
materials required to manufacture cement.

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Cement Industry

Imported Machinery

Machinery in Pakistan is all imported which makes the


quality of our cement much better than the quality of cement
in the region but it makes it expensive and the industry has
become too much dependent on imports.

Fuel Conversion

The cement industry has converted from very unreliable


resource of power and heat i.e. furnace oil to a more cheaper
and easily available gas and then to even cheaper coal.

Government Duties

The government has reduced the CED from Rs.50 to Rs.37.5


and the sales tax has been reduced from Rs.72 to Rs. 34.5
thus reducing the price and increasing demand and supply.

Export Distribution

The distribution channels for the exports of cement are not


well established. It takes Pakistan 3 days to fill a ship with
cement of export and only 6 hours to India to fill a ship thus
increasing our lead time and reducing our supply in a highly
competitive global market where cement is short in supply;
where as India is able to fill 12 ships we are able to fill only
one.

Low Interest Rates

The cement industry is able to borrow at 1-2% interest


+KIBOR (Karachi inter bank open rates) thus earning a lot
more than paying in interest expenses.

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Cement Industry

EMERGING TRENDS WORLDWIDE


High degree of mechanization and capacity to handle large
volumes has lowered the run-of- mine costs. Detailed
geological explorations and technological advances made in
geo-statistics and interpretations now make it possible for a
clearer understanding of structures and working of limestone,
balancing the economics, deploying large earthmoving
equipment, handle large volumes of overburden and exploit
residual threshold deposits.

This has created opportunities for mining engineers,


manufacturers of equipment and consultants and a definite
need for technical and operational excellence for survival.

CRITICAL SUCCESS FACTORS


These are some of the factors that were cashed on in time
to bring success to the cement industry of Pakistan:
• Government of Pakistan is planning to invest huge
sums of money to the infrastructure development in
the country. Building of massive infrastructure
projects such as building of dams, highways and
Gwadar port city are examples.
• The U.S invasion of Iraq and Afghanistan has opened
a whole range of new opportunities for the cement
manufacturers in Pakistan to export.
• The recent conversions to low-cost coal powered
plants from the previously oil powered ones have
reduced the costs of production
• The lower corporate interest rate has led to the
industry expanding the production units and thus
increasing the capacity.
• The disasters such as Tsunami, which has inflicted
several countries and other countries that suffer
natural disasters, need cement to rebuild their
countries from the devastating after-effects. This has
increased the cement demand even more.
• The cement cartel made up has led to the demand-
supply manipulations by the manufacturers and
resulted in massive gains for them

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Cement Industry

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Cement Industry

GOVERNMENT’S ROLE
The Government of Pakistan has taken varying stances on
different issues regarding the industry:

Taxes

This industry has to pay different taxes whose cumulative


impact on prices make them more uncompetitive compared to
the other countries in the region. The industry has to pay the
Central Excise Duty as well as the Sales tax of 15% on the
proposed price of the cement bag. A comparative study
regarding taxes on cement indicates that as against Pakistan
where the taxes on cement are 37%, it is nil in Iran, 7% in
Thailand, and 10% in Egypt, Philippines and Indonesia and
18% in India. As a matter of fact, Pakistan has one of the
highest tax rates on cement in the Asian region.

Licenses

This industry is again one of those industries that has


benefited from the different political leaderships in the
economy. The different governments kept on granting
licenses regardless of the actual demand. This has led to the
industry being working under-capacity for most of the time.

Cement Cartel

In 1998, APCMA made a cartel of all cement manufacturers


who affect the cement prices by allocating the quota for
production for each day. This cartel is overtly supported by
the government for the betterment of the industrialists.

Export Incentives

The export potential of this industry has not been fully


exploited; however, the incentive for the exporters is that
there is no GST applied on it, so the prices of export products
are lower compared to the local market. The government,
however, has failed to provide for adequate port facilities to
the exporters to ease the entire process.

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Cement Industry

COMPARISON OF CHINESE AND


INDIAN CEMENT INDUSTRY

CHINESE CEMENT INDUSTRY

Overview

China is expected to remain the world’s most populous


country through 2040. Its gross domestic product (GDP) has
averaged growth of more than 9 percent each year since
liberalization and economic reforms began in the late 1970s.
In 1985, China became the
World’s leading producer of cement and today produces over
one-third of total global output. While China’s cement
industry is relatively insulated from a global perspective,
changes are underway to improve product quality,
management practices and profitability, including further
opening the sector to participation by international players.

Organization of the Industry

In 2000 and 2001, the Chinese government decentralized its


industrial ministries, and the organizational structure of the
cement industry remains in a state of flux.

Ownership

A shrinking number of cement companies (now about 24


percent) remain state-owned, while a growing number (about
3 percent) are foreign invested enterprises (FIEs). Collective
enterprises account for over 50 percent of companies while 10
percent are privately owned.

There also is a trend toward consolidation and mergers.

Production

China has been the world’s leading cement producer since


1985. The United States Geological Survey estimated that
China produced about 36 percent of the world’s total.

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Cement Industry

Combined, the next three largest producers—the United


States, India, and Japan—produce less than 20 percent of the
world’s cement.

Cement Plants

The estimated number of Chinese cement plants ranges from


8,000 to 9,300, although the actual number is uncertain due to
the fragmented nature of the industry, the small size of many
plants, the fact that some plants exist illegally, and data
reliability issues.

Cement Markets

China consumes about 35 percent of the world’s cement, a


figure expected to rise to about 40 percent by 2010.

Domestic Demand

Growth in Chinese cement production is due to the


construction boom accompanying high GDP growth rates.
Forty percent of China’s cement is now used for basic
infrastructure construction.

Prices

Low quality cement is oversupplied and cheap, while high


quality cement is rarer and more expensive. Profit margins for
most cement producers hover near zero.

Transportation

Because cement is a bulk commodity, transportation costs are


a significant component of the industry’s cost structure.
Foreign investment in bulk cement storage and transportation
facilities is now strongly promoted.

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Cement Industry

Trade

China is the second leading cement exporter in the world,


accounting for about 17 percent of total world cement trade.
Exports of cement dramatically exceed imports, about 5
million tones The United States is the largest market for
Chinese cement, accounting for 42 percent of trade.

INDIAN CEMENT INDUSTRY

Overview

1. Indian cement industry dates back to 1914 - first unit was


set-up at Porbandar with a capacity of 1000 tones

2. Currently India is ranked second in the world with an


installed capacity of 114.2 million tones. Industry estimated
at around Rs. 18,000 crores (US $ 4185 mn)

3. Current per capita consumption is 85 kgs. as against world


standard of 256 kgs

4. Cement grade limestone in the country reported to be 89 bt.


A large proportion however is unexploitable.

5. 55 - 60% of the cost of production are government


controlled

6. Cement sales are primarily through a distribution channel.


Bulk sales account for < 1% of the total cement produced.

7. Ready mix concrete is a relatively nascent market in India

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Cement Industry

Structure of the industry

Major cement plants Mini cement plants

• Companies : 59 • Nearly 300 plants


• Plants : 116 • Located in Gujarat, Rajasthan, MP
• Typical installed capacity • Typical capacity < 200 tpd
• per plant : Above 1.5mntpa • Installed capacity around 9 mn.
• Total installed capacity : 105 Tonnes
mntpa • Excise : Rs. 200/ tonne
• Excise :Rs. 350/ tonne • Mini plants were meant to tap
• All India reach through multiple scattered
plants limestone reserves.
• Export to Bangladesh, Nepal, Sri However most set up in AP
Lanka, UAE and • Most use vertical kiln technology
• Mauritius • Production cost / tonne - Rs. 1,000
• Strong marketing network, tie-ups to 1,400
with customers, • Presence of these plants limited to
• contractors the state
• Wide spread distribution network .
• Infrastructural facilities not the best
• Sales primarily through the dealer
channel

Usage

Private housing sector is the major consumer of cement


(65%) followed by the government infrastructure sector at
15% down from 20%) < 1% of the cement produced is sold in
bulk form unlike US & Japan

Production

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Cement Industry

• Excess capacity exists, though some units are sick


• Cement manufactured through the wet, semi-dry or
dry process accounts for about 7%
• Dry process accounts for 93% of the installed
capacity
• Dry process replacing wet process as it is space saving
energy efficient and economical

Prices

• Price fluctuations high


• Essentially determined by demand
• Prices also vary with grades

Players

• Over 370 companies in the organized sector


• However, industry dominated by 20 companies who
account for over 70% of the market
• Individually no company accounts for over 12% of the
market

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Cement Industry

Concerns

• Cement industry going through a consolidation phase


in the last few years

Transportation

• Transportation costs high - freight accounts for 17%


of the production cost
• Road preferred mode for transportation for distances
less than 250kms.
However, industry is heavily dependant on roads as
the railway infrastructure is not adequate - shortage of
wagons.

Capacity additions

• Acquisitions have been the mainstay of the business


• Regional imbalance resulting in cross regional
movement -
limestone availability in pockets has led to uneven
capacity additions
• Capacity additions have slowed down

Industry inputs

• Highly capital intensive industry


• Nearly 55-60% of the inputs controlled by the
government
• Facing problems due to power shortage
• Coal availability and quality affecting production
• Mini plants realization of revenue lower than large
plants, survival difficult

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Cement Industry

RECOMMENDATIONS
These are the recommendations that can be implemented in
the cement industry to reinforce its success:
• There are many players in the industry that are not
functioning efficiently. There needs to be certain
minimum requirements that should be fulfilled by the
manufacturers. The government can give deadlines to
the manufacturers for implementing those measures,
which if not implemented, will lead to the closure of
the companies. These minimum requirements can be
conversion to low-cost coal powered plants.

• The government can initiate more infrastructure


projects to develop the country and, in turn,
developing the industry.

• The industry is dominated by a few giants along with


relatively smaller players. Thus, these giants need to
get involved into more research and development to
come up with new varieties of cements, different
production methods and other such innovations.

• Just as the transport sector of China uses cement in


road construction rather than asphalt, Pakistan can
also implement the same. With more and more road
development, the industry would also benefit.

• Although the manufacturing plants and machineries


are imported from other countries, there is not much
emphasis on the foreign investment in this line. The
industry in specific and the country at large stand to
gain from the foreign investment and the transfer of

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Cement Industry

technology gains to be made. However, this issue


needs to be taken up seriously by the government.

• There should be more reductions in the government


levies to make the industry more competitive in the
export market.

• Like many other competitive industries in Pakistan as


well as the cement industries of other countries, the
manufacturers and the APCMA need to have a web
presence that is highly updated. This can bring in
more investors as well as customers to this sector.

• It takes around three days for a single ship to be


loaded with cement for export. If this ship
loading/unloading time could be reduced, we would
be better able to handle the exports more quickly.

• There should be easy and quick procedures at the


ports to facilitate the cement exporters with the
process.

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